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Harbour Investments is succeeding as the rest of the small broker-dealer space struggles. Doing the exact opposite of so many of their competitors just might be the reason

Rosenow, vice president of business and product development with Harbour Investments, was responding to the question of what makes the Madison, Wis.-based broker-dealer better than its competitors, many of whom have recently shut their doors. Since Harbour is a small firm somehow thriving in a space under fire, it seemed a natural starting point. Despite his diplomatic answer, Rosenow nonetheless surprised us.

“We have a ‘no-OSJ’ platform,” he added.

Come again? In an era of ever-expanding offices of supervisory jurisdiction, to the point where it’s increasingly difficult to distinguish between broker-dealers and larger branch offices, Harbour completely eschews the business model. Why?

“This is how we’ve run our practice and our business all along,” Rosenow explained. “And could it be considered bucking a trend today? Yes and no. Our staff is highly educated and very experienced. Of our 19 staff members, 11 are principals, and three are testing to be principals. So everybody is managing all of the reps. It’s not just one person as a chief compliance officer bringing in and interpreting the rules; it’s all of us combined.”

Or, as Rhonda Meyer, the firm’s vice president and chief operating officer, put it, “it’s common sense, as well as pulling together all of our resources that we have on the staff.”

You’ll find Habour is contrarian in how they run their business, and the way in which they’re succeeding is what makes them so interesting. Founded in 1987 by industry veteran Nick Sondel, the firm’s president and CEO, it has always existed as a small (dare we say boutique?) broker-dealer, counting just 192 producing reps 25 years later. And it appears to be a great place to work, with employee tenure at the home office averaging 13 years.

“When I started the firm so long ago there were a lot of small broker-dealers around, but there weren’t many that seemed to have common sense,” Sondel said, reflecting what appeared to be a theme at the company. “The people that I knew in the business wanted some sort of track they could run on that they could rely on for good judgment and someone they knew was going be fair. I always felt there was enough money to go around. If everybody is being fair to one another, we should all grow together.”

It was the “injustice and rigidity in the business back then” that Sondel (right) said drove him to start Harbour. And it’s this commitment to keeping it small, frequent communication and strict but fair oversight that kept the firm from the Medical Capital/Provident Royalty trouble that felled so many others—to the point where industry watchers are legitimately asking if, combined with increased costs of doing business, smaller broker-dealers will even survive as an industry.

“The message that gets out to the field comes from a centralized location, which is us,” Rosenow said. “It’s not then patterned or pushed to another set of managers who then try to get the next interpretation to the advisor. Everything comes from us; even though they run their businesses differently, they get the exact same interpretation of a rule.”

Not that they’re control freaks. While they understandably want a consistent message in their interpretation of rules and regulations, like many independent broker-dealers, they trumpet their “hybrid model,” one that allows the reps to either establish their own RIA or join the firm’s under the corporate RIA umbrella.

“If they choose to establish their own RIA, they are not holding their assets inside of our broker-dealer or our platform,” he added. “They have their own office code and can have the assets held with whomever they choose, whether it’s Schwab or TD Ameritrade or someone else. At that point we just have access to their information.”

As for trends they’re seeing in the hybrid space, it’s all based on the amount of assets.

“If they’re getting up around $100 million in AUM that the office is managing, then we see moving toward an outside RIA. It gives them a bit more flexibility, despite all the flexibility we like to give.”

The more you speak with the team at Harbour, the more it seems they correctly anticipate what’s just over the horizon and position themselves accordingly. Is it luck or skill?

“It’s the old cliché, ‘I’d rather be lucky than good,’” Rosenow (left) responded with a strong hint of humor. “And that goes for pretty much anything. I think because of our highly experienced staff, we almost create the luck. It also evolves from how we recruit. We do not have a recruiter. Rhonda, myself and two people on my team are the recruiters. When we’re out talking to potential recruits, it’s the people who do that day-to-day running of the business; it’s not a recruiter who’s going to get a bonus because they just landed somebody. We’re looking for the long-term rep advisor who’s going to stay with us, and we’re going to earn their business every day.”

No OSJ-model, no recruiters (in the traditional sense anyway); when we asked our next question—what is their idea of the “perfect advisor” to target?—we kind of already knew the answer.

“We probably don’t have a perfect advisor,” Rosenow explained. “We have a rep count just under 200, and we probably have 150 different practices in terms of the way they conduct business. Our perfect rep is basically a well-rounded, compliant person who will use as many of our products and services that we have available (which in the independent world is almost infinite). They balance their books of business with some advisory services, some VAs, some mutual funds and a little bit of alternative investments.”

And forget up-front bonuses or high payouts. That may play well in New York, but in slower-paced Wisconsin, Meyer said, “it really comes down to personality, not so much what [reps are] writing or how big they are. It comes down to if we feel like home to them and vice versa because we want the relationship to work on both sides. It’s the same thing when we hire somebody in the back office; we make them go through the wringer a little bit because we want to make sure they’re just as happy with us [as] we are with them.”

For such a small firm, they sound awfully customized in the way they treat their reps, which of course raises the question of cost. More specifically, how do they balance cost versus customization?

“Efficiencies,” Rosenow answered. “About four or five years ago, we brought on back-office technology that integrates a lot of different things. It cut down on our staff and instead of entering information three or four times, it’s entered once. It’s not a full-spread CRM like Redtail, but more for the novice. Those efficiencies—by completely eradicating the repetitiveness in our back office—are how we handle cost.”

As to whether it will remain a small firm, or at least its current size, Meyer (once again) comes at it a bit differently.

“That’s kind of funny because Nick wants to grow to about 400 reps,” she said. “Dave wants to grow to 300 reps. My answer always is that I don’t want to grow past 25 staff members. I’m operations, so I’m in charge of that. If you get too big, you lose the family atmosphere, so for me it’s about the number of back-office staff that we have to effectively service the reps.”

Judging from Harbour’s success, however, Meyer (left) might not have a choice, especially as more small broker-dealers shut their doors and more reps find themselves in desperate need of a home. The environment like the one Harbour offers might have them come running.

“We just want to make it easy for people so that they don’t have to recreate the wheel,” Sondel concluded. “They can plug into a friendly firm like ours and don’t have to pay for their own SEC compliance accountant or registration fees or for an audit. They maybe don’t have the resources or the size to be able to do these things on their own. So these are the kinds of things that we’re set up to offer now, and we can offer them at extremely low prices.”